Alcatel-Lucent just won a patent-infringement lawsuit against Microsoft for a whopping $1.5 billion, claiming Microsoft did not get licensing rights to use MP3 technology in its Windows Media Player software. (Source, full text below...)

The ruling could open up the door for an Alcatel-Lucent suing spree, targeting the many other users of the technology including Apple, Texas Intstruments, Intel (and Bioware!). Of course Microsoft will appeal this and the saga is likely far from over.

For its part, Microsoft did pay $16 million in licensing fees to a co-creator of the MP3 format, Fraunhofer. (MP3 was created by engineers from Fraunhofer and Bell Labs which later became Lucent.) Microsoft's had tried in 2003 to get a declaratory agreement with Lucent over audio/video encoding patents, but Lucent had started lawsuits against Dell and Gateway. Dell and Gateway sought protection from Microsoft, since it was Microsoft's software that was being targeted.

The $1.5 billion claim is based upon years of lost royalties and is one of the largest patent-infringement awards granted.

Quote:

Originally Posted by CNET News

In its verdict, the jury assessed damages based on each Windows PC sold since May 2003. The case could have broader implications, should Alcatel-Lucent pursue claims against other companies that use the widespread MP3 technology.

In a statement, Microsoft Deputy General Counsel Tom Burt said the software titan believes that the verdict "is completely unsupported by the law or the facts."

"We will seek relief from the trial court, and if necessary, appeal," Burt said.

The company also noted that roughly half of the damages are for overseas sales of Windows, which could be affected by a separate patent case. That case, currently before the Supreme Court, deals with whether overseas sales of software products should be subject to U.S. patent law.

Microsoft said it believes that it properly licensed MP3 technology from Fraunhofer, paying that company $16 million. Fraunhofer, which helped develop the MP3 compression technology along with Lucent's Bell Labs, has licensed its intellectual property to companies that want to use the audio format in their products. Fraunhofer has since handed the MP3-licensing duties over to Thomson.

Scores of technology companies, including Apple, Intel and Texas Instruments, license the MP3 technology, according to Thomson's MP3licensing.com. An Apple representative declined to comment on the verdict.

"Therefore, today's outcome is disappointing for us and for the hundreds of other companies who have licensed MP3 technology," Burt said. "We are concerned that this decision opens the door for Alcatel-Lucent to pursue action against hundreds of other companies who purchased the rights to use MP3 technology from Fraunhofer, the industry-recognized rightful licensor."

Alcatel-Lucent's Ambrus declined to say whether the company might pursue other companies that use MP3 technology in their products.

The ruling could spur Alcatel-Lucent to seek royalties from other companies, said Andrew Leibnitz, an intellectual property lawyer for Farella Braun and Martel in San Franisco.

"Given this verdict, it wouldn't surprise me if Lucent is even more aggressive in the marketplace about licensing its patents, but it has always been aggressive," Leibnitz said. Leibnitz earlier represented Dolby Labs in a patent dispute over whether one of Dolby's audio codecs infringed on Lucent patents.

While the ruling was large, Leibnitz said some of that is simply by virtue of Microsoft's size. "Anytime Microsoft gets sued, it can be a serious amount of damages at stake, especially when it relates to Windows."

The case dates back to 2003, when Lucent sued PC makers Dell and Gateway over their use of the audio technology. Microsoft stepped into the legal fray and has been embroiled in a widening legal battle with Lucent (now Alcatel-Lucent) ever since.

The jury verdict Thursday relates only to a portion of Alcatel-Lucent's patent claims. Microsoft has also countersued in the case, and there have been additional actions in other legal venues, including an International Trade Commission case filed this week.

"This case is only one part of a larger dispute between Microsoft and Alcatel-Lucent over intellectual property that began when Alcatel-Lucent took aggressive action against our customers and later against Microsoft," Burt said. "We will continue to defend our customers against unfounded claims and are pursuing a number of patent claims against Alcatel-Lucent, including the International Trade Commission case filed earlier this week."

Leibnitz said he expected a protracted fight. "I don't think this is the end of this fight by far."

Well Microsoft probably wanted to settle this on the order of $16 million, like what they paid earlier. That's a couple orders of magnitude different than what Lucent had in mind. (They were actually seeking $4.5 billion.)

I just can't see anything good coming from this. Reminds me of Unisys/Compuserve fight over the .gif file format years ago, except much bigger. If the decision is upheld and Lucent starts going after others for using MP3s, I'm not really sure what effect it would have on the consumer at this point. Everybody already has software already to rip music to MP3 and devices to play them on. Maybe in 5-10 years down the road MP3 won't be quite as supported as it is today.

Well Microsoft probably wanted to settle this on the order of $16 million, like what they paid earlier. That's a couple orders of magnitude different than what Lucent had in mind. (They were actually seeking $4.5 billion.)

I just can't see anything good coming from this. Reminds me of Unisys/Compuserve fight over the .gif file format years ago, except much bigger. If the decision is upheld and Lucent starts going after others for using MP3s, I'm not really sure what effect it would have on the consumer at this point. Everybody already has software already to rip music to MP3 and devices to play them on. Maybe in 5-10 years down the road MP3 won't be quite as supported as it is today.

There are enough other formats, like windows' own .wma that are supported by music players and PCs, though the impact would be quite significant, I don't think it would be catastrophical...

Lawsuits are a shame. They take science and technological advancement and make it look like a cartoon in a more serious game. :/ I sometimes think if the future will be this tangled. Whether that new line of Sovereign Class starships will have to be recalled because of some interesting new information on the patent of the impulse engine manifolds....

Maybe something good can come out of it -- like an incentive to use open source audio compression formats like WavPack (*.wv -- compresses .wav files using lossless the LZW compression algorithm).

There are a handful of open/free audio formats that offer the same or better features, compression and sound quality as MP3, like Ogg Vorbis. It can be problematic to switch now though since MP3 already has such a broad user base with countless players for it, both hardware and software, and many online stores selling music in MP3 format, and many people already having ripped their record collections to MP3. It's hard to replace a well-established standard.

im with stoffe on this one.... open source all the way... The fact that mp3 has seeped into the public consciousness is a shame... but no ones elses fault but Apple & MS. Im sure there are millions of people that think mp3 is the only way music exists on a computer....

I had a friend ask me what this "weird audio file type called a .wav" was the other day lolz

Even funnier than this though are the current DRM debates and backflips going on.